DATE: 1 JUNE 2016 (RESTATED AS AT 21 FEBRUARY 2017 IN ACCORDANCE WITH CLAUSE 29.1)

Transcription

1 DATE: 1 JUNE 2016 (RESTATED AS AT 21 FEBRUARY 2017 IN ACCORDANCE WITH CLAUSE 29.1) PROPOSAL FOR A COMPANY VOLUNTARY ARRANGEMENT UNDER THE PROVISIONS OF THE INSOLVENCY ACT 1986 in the matter of IONA ENERGY COMPANY (UK) LIMITED (IN ADMINISTRATION) and in the matter of the INSOLVENCY ACT 1986 UK

2 TABLE OF CONTENTS 1. Introduction Definitions... 1 Part I Executive Summary Overview of Events Leading to Administration and the Company Voluntary Arrangement Overview of Company Voluntary Arrangement Procedure Key Dates and Expected Timetable Creditor Actions Required... 9 Part II Background Background Information Assets Transferred from the Company Directors Statement of Affairs Part III Terms of the Company Voluntary Arrangement Introduction The Purchase Agreement and Completion Supervisors Responsibilities and Duties Administrators Establishment of Contribution and Fund CVA Creditors Committee Termination of Contracts Anticipated Outcome Comparison to Dissolution The Creditors Department of Energy & Climate Change Liability CVA Creditor Claims Rights to Interest Set Off Dividend to Approved Creditors Duration of Company Voluntary Arrangement Nominees Fees and Expenses Supervisors Fees and Expenses Indemnity Modification or Variation of Company Voluntary Arrangement Ambiguity Release of Administrators Vacancy in the Office of Supervisor Release and Discharge of Supervisors Moratorium Third Parties The EC Regulation UK

3 37. Governing Law Resolutions Schedule 1 Directors Statement of Affairs as at 6 January Schedule 2 Summary of the Company and Huntington s Recent Financial Performance Schedule 3 Comparison of Estimated Outcomes for CVA Creditors in Company Voluntary Arrangement and Dissolution Schedule 4 Breakdown of Estimated Receipts and Payments in the Dissolution Scenario Schedule 5 Security Granted by the Company Schedule 6 List of Creditors Schedule 7 Company Voluntary Arrangements A Creditors Guide to Insolvency Practitioners Fees.. 54 Schedule 8 Estimated Outcome for Bondholders from Administrations in CVA Scenario Schedule 9 Estimated Costs of the CVA Schedule 10 Additional Information in Relation to Supervisors Fees and Expenses Schedule 11 Notice of Meeting Schedule 12 Notice of Claim Schedule 13 Form of Proxy Schedule 14 Non-Terminating Contracts UK

4 1. INTRODUCTION 1.1 Chad Griffin and Lisa Jane Rickelton, both of FTI Consulting LLP, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD (the Administrators ), were appointed as joint administrators of Iona Energy Company (UK) Limited (formerly known as Iona Energy Company (UK) Plc), having its registered office at Insolvency Support Services Limited, H5 Newark Business Park, Newark South Road, Glenrothes, KY7 4NS with registered number SC (the Company ), by a notice of appointment by the directors of the Company dated 6 January 2016 and filed at the Court on 6 January 2016 (the Administration Appointment ). The Administrators were appointed by the directors of the Company via the out of court route pursuant to paragraph 22 of Schedule B1 of the Act. Since 6 January 2016, the Company has been administered under the control and supervision of the Administrators. 1.2 This document is divided into the following sections: Part I Executive Summary: overview of the CVA and the Nominees recommendations; Part II Background: including Company information, details of the events leading up to the Administration Appointment and this CVA Proposal, and creditor actions required; and Part III Terms of the Company Voluntary Arrangement: details of the Nominees proposals for the CVA which will enable the Company s liabilities to the Fund Creditors and the Group Companies to be compromised in order to implement a sale of the Shares. 1.3 The Administrators statement of proposals for the Company pursuant to paragraph 49 of Schedule B1 of the Act was sent to all creditors of the Company on 9 February On 23 February 2016, the Administrators statement of proposals was deemed to have been approved pursuant to Rule 2.25(3) of the Rules. 1.4 One of the proposals in the Administrators statement of proposals was to implement a CVA in order to facilitate a sale of Orlando and Kells. 1.5 It is therefore necessary, pursuant to section 3 of the Act, to call a meeting of the creditors of the Company at which creditors will be asked to approve the details of the CVA. 1.6 A creditors guide to the CVA procedure under Part 1 of the Act is provided at clause DEFINITIONS 2.1 In this CVA Proposal the following expressions shall, except where the context otherwise requires, have the following respective meanings: Act means the Insolvency Act 1986 as at the date of this CVA Proposal; Administration Appointment has the meaning given to it in clause 1.1; Administrators has the meaning given to it in clause 1.1; Approved Claim means a claim submitted by a Fund Creditor by way of a Notice of Claim to the Supervisors on or before the Claim Date and approved by the Supervisors in accordance with clause 21, entitling the Fund Creditor to receive a dividend from the Fund; Approved Creditor means a Fund Creditor who has an Approved Claim; UK

5 Assignation and Pledge means the Scots law assignation and pledge granted by the Parent in favour of the Junior Creditor dated 30 September 2013 and registered at the Government of Alberta Personal Property Registry. Atlantic means P/F Atlantic Petroleum, a company existing under the laws of the Faroe Islands and having its registered office at PO Box 1228, Yviri Vio Strond 4 3rd Floor, Torshavn, Faroe Islands Fo-110, Denmark with registration number FC023752; Bond Agreement means the Norwegian law governed bond agreement dated 26 September 2013 between, amongst others, the Company, the Parent and the Bond Trustee as amended by Agreement No.1 dated 3 June 2014 and Amendment Agreement No.2 dated 17 April 2015 and as amended and restated from time to time; Bond Debt means the aggregate amount owed by the Company to the Bondholders under the Bond Agreement; Bondholder Committee has the meaning given to it in clause 7.9; Bondholders means the holders of the Bonds; Bond Repayment Amount means an amount equal to USD $1,504,970; Bond Security means the fixed charges and the Senior Floating Charges securing the Bonds which have been granted by the Company in favour of the Bond Trustee and listed (along with the Junior Security) at Schedule 5; Bonds means the debt instruments constituted by the Bond Agreement which have been issued by the Company; Bond Trustee means Nordic Trustee ASA (formerly known as Norsk Tillitsmann ASA), a limited company existing under the laws of Norway and having its registered office at Haakon VII gate 1, N-0161, Oslo, Norway with registration number ; Challenge Period means the 28-day period, starting on the day on which the chairman of the Creditors Meeting and Member s Meeting lodges their report of the Creditors Meeting and Member s Meeting in accordance with Rule 1.17 of the Rules, during which a creditor of the Company can challenge the CVA under sections 6(3)(a) or 6(3)(b) of the Act and Rule 1.15B(3) of the Rules or a member of the Company can challenge the CVA under section 4A(3) of the Act; Challenge has the meaning given to it in the definition of Effective Date; Chevron means Chevron North Sea Limited, a company incorporated under the Companies Act and having its registered office at 9 Cavendish Square, London, W1G 9DF with registered number ; Claim Date means 5pm (UK time) on 25 July 2016, being the last date on which Fund Creditors must submit a Notice of Claim to the Supervisors in order to be entitled to a dividend from the Fund; Companies Act means the Companies Act 2006; Company has the meaning given to it in clause 1.1; Completion means the completion of the sale and purchase of the Shares in accordance with the provisions of the Purchase Agreement; UK

6 Consideration means the amount payable by the Purchaser to the Bond Trustee for the sale of the Shares being an amount equal to USD $1.00; Contribution means an amount equal to USD $2 million to be provided by the Lenders to the Company by way of a loan to establish the Fund; Court means the Court of Session in Edinburgh; Creditors Meeting means the meeting of the creditors to be held at 11am on 17 June 2016 at Palm Court Hotel, 81 Seafield Road, Aberdeen, AB15 7YX to consider the CVA and vote on the resolutions set out at clause 38; CVA means the company voluntary arrangement to be approved by the creditors of the Company pursuant to this CVA Proposal either with or without modification; CVA Creditor means all creditors of the Company who will be bound by the terms of the CVA in accordance with section 5 of the Act, whether the amount owed to each such creditor by the Company is present or future, certain or contingent, and ascertained or sounding only in damages (save that creditors shall not be CVA Creditors in respect of any future liabilities arising after Completion under Non-Terminating Contracts and, for the avoidance of doubt, the inclusion or non-inclusion of a person in Schedule 6 shall have no relevance in identifying whether or not a particular person is a CVA Creditor, as defined above); CVA Proposal means this document; DECC has the meaning given to it in clause 20.1; Deferred Bond Repayment Amount means an amount equal to $3,500,000; Deferred Bond Repayment Conditions has the meaning given to that term in the Purchase Agreement; Devco means Iona UK Developments Co Limited, a company incorporated under the Companies Act and having its registered office at 20 Queens Road, Aberdeen, AB15 4ZT with registered number SC467651; dollar means the lawful currency of the United States of America; EC Regulation has the meaning given to it in clause 36.1; Effective Date means the earlier of (i) if the CVA is approved at the Creditors Meeting and the Member s Meeting, 18 July 2016, being the date the CVA becomes unconditional following the expiry of the Challenge Period during which no application by any creditor or member of the Company under sections 4A(3), 6(3)(a) or 6(3)(b) of the Act and/or Rule 1.15B(3) of the Rules (as applicable) was served on the Company (such application being a Challenge ) or (ii) if a Challenge is made, the date on which the Challenge is rejected; Farne & Lundy means the Company s interest in the Farne & Lundy oil field under licence number P.2107; Fleetwind means the Company s interest in the Fleetwind oil field under licence number P.1801; Form of Proxy means a proxy in writing substantially in the form contained in Schedule 13; FTI means FTI Consulting LLP, a limited liability partnership having its registered office at 200 Aldersgate, Aldersgate Street, London, EC1A 4HD with registered number OC372614; UK

7 Fund means a fund of an amount equal to USD $2 million, to be converted into pounds on the date of receipt by the Supervisors using the FX exchange rate as set on the date of receipt and held on trust by the Supervisors in a bank account of their choosing for the benefit of the Approved Creditors and to be paid to each Approved Creditor as a dividend pro rata to its Approved Claim, subject to clause 24; Fund Creditor means the Unsecured CVA Creditors except the Senior Creditor, the Junior Creditor, Huntington and the Parent; Funding Loan Agreement means the commitment letter given by the Lenders in favour of the Purchaser on or prior to the date hereof; Group Companies means the Parent and its subsidiaries, including the Company; Huntington means Iona UK Huntington Limited (in administration), a company incorporated under the Companies Act and having its registered office at c/o FTI Consulting LLP, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD with registered number ; Huntington Licence means Huntington s interest in the Huntington oil field under licence number P.1114; Junior Creditor means Britannic Trading Limited a company incorporated under the Companies Act and having its registered office at Chertsey Road, Sunbury on Thames, Middlesex, TW16 7BP with registered number ; Junior Debt means the amounts owed to the Junior Creditor in respect of (i) the transactions that were entered into pursuant to the 2002 ISDA Master Agreement dated 20 February 2013 between the Junior Creditor and the Company, as amended and restated by a deed of amendment and restatement dated 20 September 2013; (ii) and the deferred fee in relation to the hedges, pursuant to invoice number issued by the Junior Creditor; Junior Floating Charges means (i) the Scottish law governed bond and floating charge granted by the Company to the Junior Creditor dated 30 September 2013 and registered at Companies House on 2 October 2013; and (ii) the floating charge contained within the English law governed debenture granted by the Company to the Junior Creditor dated 30 September 2013 and registered at Companies House on 3 October 2013; Junior Security means the fixed charges and Junior Floating Charges granted by the Company in favour of the Junior Creditor and listed (along with the Bond Security) at Schedule 5; Kells means the Company s interest in the Kells oil field under licence number P.1607; Lenders means Orlando Holdings, L.P. and OCM Orlando Holdings Ltd, or such other entity which they procure to provide the financing under the terms of the Funding Loan Agreement; M&A Process has the meaning given to it in clause 3.5; Management means the management of the Company and Huntington; Member s Meeting means a meeting of the sole member of the Company to be held at 12pm on 17 June 2016 at Palm Court Hotel, 81 Seafield Road, Aberdeen, AB15 7YX to consider the CVA and vote on the resolutions outlined in the Notice of Meeting at Schedule 11; Nominees means Chad Griffin and Lisa Jane Rickelton, both of FTI, who propose to be appointed as Supervisors by the CVA Creditors; UK

8 Non-Terminating Contracts means (i) all contracts entered into by the Administrators on behalf of the Company, on or after their appointment as Administrators to the Company on 6 January 2016 and (ii) all contracts listed at Schedule 14; Notice of Claim means a notice in writing of a claim signed by a person being or claiming to be a CVA Creditor in the form set out in Schedule 12; OGA means the UK Oil and Gas Authority or any successor organisation or authority; Operative Date means 6 January 2016, being the date of the Administration Appointment; Orlando means the Company s interest in the Orlando oil field under licence number P.1606; Orlando Farm Out has the meaning given to it in clause 7.12; Parent means Iona Energy Inc., an entity registered in Canada and having its registered office at th Avenue SW Suite 1600, Calgary, Alberta, Canada, T2P 2Z1; Pounds means the lawful currency of the United Kingdom of Great Britain and Northern Ireland; Preferential Claims means any claims to which preferential status is afforded by section 386 of and Schedule 6 to the Act; Preferential Creditors means those creditors of the Company holding Preferential Claims; Prescribed Part means a proportion of the net property of the Company achieved from floating charge asset realisations which must be made available for the unsecured creditors of the Company in accordance with section 176A of the Act; Purchase Agreement means the agreement between, amongst others, the Bond Trustee, the Administrators, the Supervisors and the Purchaser for the sale of the Shares to be executed on or around the date of this CVA Proposal (as amended and restated on [ ] February 2017 in accordance with clause 29.1 of this CVA Proposal); Purchaser means Decipher Energy Limited (formerly Decipher Energy Assets Limited), a company incorporated under the Companies Act and having its principal place of business at 14 Heddon Street, Mayfair, London, England, W1B4DA, with registered number or a wholly owned subsidiary of Decipher Energy Limited; Remaining Bond Debt means Bonds in a principal amount equal to the Deferred Bond Repayment Amount; Restructuring Proposal has the meaning given to it in clause 7.10; Ronan & Oran means the Company s interest in the Ronan & Oran oil field under licence number P.1971; Rules means the Insolvency (Scotland) Rules 1986 as in force at the date of this CVA Proposal; Secretary of State has the meaning given to it in clause ; Section 29 Notice has the meaning given to it in clause 20.1; Senior Creditor means Nordic Trustee ASA acting in its capacity as Bond Trustee under the Bond Agreement voting for and on behalf of the Bondholders in accordance with the authority granted to it in the bondholder summons dated 14 December 2015; UK

9 Senior Floating Charges means (i) the Scottish law governed bond and floating charge granted by the Company to the Senior Creditor dated 30 September 2013 and registered at Companies House on 12 October 2013; and (ii) the floating charge contained within the English law governed debenture granted by the Company to the Senior Creditor dated 30 September 2013 and registered at Companies House on 12 October 2013; Shares means the 50,001 issued ordinary shares of GBP 1.00 each in the capital of the Company; Shares Pledge means the Scots law pledge over the Shares granted by the Parent in favour of the Bond Trustee dated 30 September 2013 and registered at the Government of Alberta Personal Property Registry on 30 September 2013; SIP16 means Statement of Insolvency Practice 16: Pre-Packaged Sales in Administrations; Supervisors means the supervisors of the CVA to be appointed by the CVA Creditors pursuant to the CVA or such other persons who may act as their successors from time to time; Terminating Contracts means all contracts entered into by the Company prior to the Effective Date, with the exception of the Non-Terminating Contracts; Transferred Assets means the assets listed in clauses 8.2 and 8.3; Trent & Tyne means the Company s interest in the Trent & Tyne oil field under licence numbers P.609, P.685 and P.2114; Unsecured CVA Creditors means all of the CVA Creditors except for (i) the Preferential Creditors; (ii) the Senior Creditor in respect of the value of its security under the Bond Security only; and (iii) the Junior Creditor in respect of the value of its security under the Junior Security, and for the avoidance of doubt, the Senior Creditor will be an Unsecured CVA Creditor in respect of the shortfall in the value of its security under the Bond Security and the Junior Creditor will be an Unsecured CVA Creditor in respect of the shortfall in the value of its security under the Junior Security; VAT or Value Added Tax means value added tax as charged under the Value Added Tax Act 1994; West Wick means the Company s interest in the West Wick oil field under licence number P.185; West Wick Actions has the meaning given to it in clause 8.3; and West Wick Assignment has the meaning given to it in clause 8.3. UK

10 PART I EXECUTIVE SUMMARY 3. OVERVIEW OF EVENTS LEADING TO ADMINISTRATION AND THE COMPANY VOLUNTARY ARRANGEMENT 3.1 The Company is the holder of a number of licences to extract oil and gas from the UK sector of the North Sea. 3.2 Huntington was a wholly owned subsidiary of the Company. However, as part of the preparatory steps for the CVA, the Company s 100% shareholding in Huntington was transferred to Devco. Huntington has a working interest in the Huntington Licence. 3.3 Operational difficulties with the Huntington Licence, a delay in the projected first oil date for Orlando and the significant drop in oil and gas prices led to the Company experiencing financial difficulties in late 2014 and during The Company, with support of the Bondholders, sought to implement a financial restructuring of the Group Companies, which was ultimately unsuccessful. 3.5 The Company then entered into an Accelerated Merger & Acquisition process (the M&A Process ) for the shares in and/or all of the assets of each of the Company and Huntington. 3.6 As sufficient progress could not be made in relation to the M&A Process in respect of Orlando and Kells and, against the backdrop of the Company s financial position, the decision was taken by Management to place the Company and Huntington into administration. 3.7 The protection which an administration gave the Company was a prime factor in the decision to proceed with placing it into administration. Under an administration, there is statutory protection from legal proceedings being commenced or continued against the Company, no steps can be taken to enforce security and no order can be made for the winding up of the Company. 3.8 The Administrators have determined that it is in the best interests of the unsecured creditors of the Company that the sale of the Shares is implemented in conjunction with a CVA because the CVA will result in a dividend for each of the Approved Creditors and there would be no value for unsecured creditors otherwise. The CVA will also enable the Orlando and Kells developments to continue, which may result in further opportunities for certain creditors. The sale of the Shares could not be completed without a CVA. The Purchaser is willing to contribute funding for the CVA, which will be used to establish the Fund from which a dividend will be paid to each of the Approved Creditors if the CVA is approved and Completion occurs. The costs of the CVA (including the Nominees and Supervisors fees) will be met by the Bond Trustee from the proceeds payable to the Bond Trustee from Huntington during its administration. 3.9 The dividend paid to each of the Approved Creditors through the CVA is estimated to be between 4 6 pence in the pound. However, there would be no dividend available for the Company s unsecured creditors in an administration or as a result of the dissolution of the Company. 4. OVERVIEW OF COMPANY VOLUNTARY ARRANGEMENT PROCEDURE 4.1 A CVA is a formal insolvency procedure under Part 1 of the Act, which enables a company to agree with its creditors a scheme which determines how creditors claims against the company should be paid and in what proportions. UK

11 4.2 To implement a CVA, approval is required from a majority in excess of 75% in value of creditors present and voting, either in person or by proxy, on the CVA proposals at the meeting of the creditors. 4.3 Under Rule 1.16A(3) of the Rules, there is to be left out of account a creditor s vote in respect of any claim or part of a claim: where written notice of claim was not given, either at the meeting or before it, to the chairman or the nominees; where the claim or part is secured (for the avoidance of doubt the Bond Trustee, Junior Creditor and Huntington will be voting at the Creditors Meeting in respect of the unsecured element of their claims against the Company); where the claim is in respect of a debt wholly or partly on, or secured by, a current bill of exchange or promissory note, unless the creditor is willing: (a) (b) to treat the liability to the creditor on the bill or note of every person who is liable on it antecedently to the company, and who has not been made bankrupt or had their estate sequestrated (or in the case of a company, which has not gone into liquidation), as a security in the creditor's hands; and to estimate the value of the security and (for the purpose of entitlement to vote, but not of any distribution under the arrangement) to deduct it from the creditor's claim. To the best of the Nominees knowledge, the Company has no debt secured by a current bill of exchange or promissory note. 4.4 Under Rule 1.16A(4) of the Rules, a resolution approving the CVA will be invalid if those creditors voting against it include more than half in value of the creditors of the company, for these purposes counting only those creditors: to whom notice of the meeting was sent; whose votes were not left out of account due to no notice of claim having been received by the nominees; and who are not, to the best of the chairman s belief, persons connected with the company pursuant to sections 249 and 435 of the Act. 4.5 Any creditor entitled to vote at the meeting of the company s creditors may apply to court pursuant to sections 6(3)(a) and 6(3)(b) of the Act if they believe the CVA unfairly prejudices the interests of creditors or there has been a material irregularity at or in relation to the meeting of creditors. 4.6 Any such application referred to in clause 4.5 must be made by the creditor within a period of 28 days beginning on the day on which the chairman of the creditors meeting reports the result of the creditors meeting to the court or, if the creditor was not given notice of the creditors meeting, such application must be made within a period of 28 days beginning on the day on which the creditor became aware that the creditors meeting had taken place. 4.7 The company s shareholders can approve the CVA proposals by a majority in excess of 50% in value present in person or by proxy at the meeting of members, but if the shareholders do not approve the CVA proposals while the creditors do, the CVA will still be implemented. UK

12 4.8 If a CVA is approved, all creditors of the company, including those creditors that were entitled to vote at the creditors meeting or who would have been entitled to vote had they received notice of the meeting, will be bound by the terms of the CVA. 4.9 This CVA Proposal outlines the proposals for a CVA of the Company, giving the details required under the Act and the Rules and setting out the basis on which it is intended the CVA should be conducted. 5. KEY DATES AND EXPECTED TIMETABLE 5.1 An indicative timetable for the implementation of the CVA is provided below: Event Launch of the CVA, dispatch of CVA documents, Proxy Forms and notices of meetings to the CVA Creditors and the Member Latest date for return of Proxy Forms and Notices of Claim for the purpose of voting at the Creditors Meeting and the Member s Meeting (unless brought to the Creditors Meeting in accordance with clause 6.7) Creditors Meeting Member s Meeting The results of the Creditors Meeting and the Member s Meeting are filed at Court Effective Date Claim Date Date 1 June pm (UK time) on 14 June June June June July pm (UK time) on 25 July 2016 The payment of a dividend from the Fund to each of the Approved Creditors will be made as soon as possible following the adjudication and agreement of all Fund Creditors' claims. As set out in clause 25.1, it is anticipated that the CVA will be no more than nine months in duration and potentially far shorter. All dates given are based on current expectations and may be subject to change. If any of the expected dates set out above change, the Administrators will give notice of the change to the CVA Creditors. 6. CREDITOR ACTIONS REQUIRED Voting at the Creditors Meeting 6.1 The Creditors Meeting will be held at 11am on 17 June 2016 at Palm Court Hotel, 81 Seafield Road, Aberdeen, AB15 7YX. 6.2 The notice calling the meeting, the form of which is contained at Schedule 11, and accompanying papers have been sent to all known creditors of the Company. Only the UK

13 Company s creditors are entitled to attend and vote at the Creditors Meeting but if any other persons believe themselves to be creditors of the Company and their name does not appear on the list of creditors at Schedule 6, such persons should notify the Nominees at William.Marsden@fticonsulting.com or on +44(0) accordingly as soon as possible and in any event by 17 June At the Creditors Meeting creditors will vote on the resolutions set out at clause A person wishing to vote at the Creditors' Meeting will need to complete a Notice of Claim and submit it to the Nominees c/o William Marsden, FTI Consulting LLP by post to 200 Aldersgate Street, London, EC1A 4HD or by to William.Marsden@fticonsulting.com. Any creditor who will sustain loss or damage as a consequence of the termination of the Terminating Contracts on the Effective Date may include said loss or damage in their Notice of Claim. Persons claiming to be creditors should submit a completed Notice of Claim for the purpose of voting at the meeting even if they have previously notified their claims to the Administrators. A blank Notice of Claim, in the form set out in Schedule 12, is enclosed with this CVA. 6.5 A Form of Proxy is provided at Schedule 13 for persons wishing to vote by proxy at the Creditors Meeting. Completed Forms of Proxy should be returned to the Nominees c/o William Marsden, FTI Consulting LLP by post to 200 Aldersgate Street, London, EC1A 4HD or by to William.Marsden@fticonsulting.com. Creditors can appoint the chairman of the meeting as their proxy holder who can vote on their behalf provided that the creditor specifically instructs the chairman to vote either for or against the relevant proposal. Failure to give proper instructions to the chairman will result in the creditor s Form of Proxy being invalid. Any person seeking to vote as a proxy for a person claiming to be a creditor must have a copy of the completed Form of Proxy available at the Creditors Meeting. 6.6 In order to expedite the procedure for voting, persons wishing to vote at the Creditors' Meeting are requested to return their Notice of Claim and Form of Proxy (if applicable) to the Nominees c/o William Marsden, FTI Consulting LLP by post to 200 Aldersgate Street, London, EC1A 4HD or by to William.Marsden@fticonsulting.com, as soon as possible and preferably by no later than 5pm (UK time) on 14 June However, persons wishing to vote at the Creditors Meeting may alternatively bring their completed Notice of Claim with them to the Creditors Meeting. 6.8 Creditors wishing to attend the Creditors Meeting in person are asked to confirm their intention to do so to the Nominees at William.Marsden@fticonsulting.com or on +44(0) as soon as possible and preferably by 5pm (UK time) on the 14 June One of the Nominees will act as chairman of the Creditors Meeting. The chairman will have the power under Rule 1.15B of the Rules to ascertain the entitlement of persons wishing to vote and to admit or reject their claims accordingly. The chairman will base their decision on the books and records of the Company and such other evidence they consider appropriate. The figure accepted for voting purposes at the Creditors Meeting will not necessarily be the same as the figure which is ultimately accepted for dividend purposes or any other purpose Voting is by value alone and is based on the value of a creditor's debt as at the Operative Date, and on the value of any debt incurred by a creditor as a consequence of the termination of the Terminating Contracts on the Effective Date. All values are to be ascertained by the chairman of the meeting in accordance with clause 6.9. A creditor may vote in respect of a debt for an unliquidated amount or any debt whose value is not ascertained and for the purposes of voting UK

14 (but not otherwise) their debt will be valued at GBP 1 unless the chairman agrees to put a higher value on it If any person wishes to represent a corporation pursuant to a resolution authorising them to do so under section 323 of the Companies Act, they must produce a copy of the resolution to the chairman at the Creditors' Meeting. The copy should be certified as a true copy by a director or secretary of the corporation. Notification of Claims 6.12 Subject to clause 6.13, if the CVA is approved, Notices of Claim must be submitted by the Fund Creditors to the Supervisors c/o William Marsden, FTI Consulting LLP by post to 200 Aldersgate Street, London, EC1A 4HD or by to William.Marsden@fticonsulting.com on or before 5pm (UK time) on 25 July Unless a Fund Creditor can show that there were exceptional circumstances, they will have no claim for a dividend from the Fund if they do not submit a completed Notice of Claim on or prior to the Claim Date Fund Creditors who have submitted a Notice of Claim to the Nominees in order to vote at the Creditors Meeting do not need to resubmit their Notice of Claim as their original Notice of Claim will be used by the Supervisors to determine their entitlement to a dividend from the Fund. UK

15 7. BACKGROUND INFORMATION Statutory information UK PART II BACKGROUND 7.1 The Company was incorporated on 14 December 2007 under the name Golfdee Limited. The company changed its name to Iona Energy Company (UK) Limited on 18 December On 18 March 2014, the Company became a public limited company. On the 27 May 2016 the Company was registered as a private limited company. 7.2 The directors of the Company as recorded in its statutory books as at the Operative Date are Iain Charles McKendrick and Thomas Hamilton Reynolds. 7.3 The secretary of the Company as recorded in its statutory books as at the Operative Date is Burness Paull LLP. 7.4 Pursuant to the Shares Pledge, the shareholder of the Company as shown in its register of members as at the Operative Date is the Bond Trustee, who holds 50,001 ordinary shares of GBP 1.00 each. Background and events leading up to the Administrators appointment 7.5 As at the Operative Date, the Company held the following licences to extract oil and gas from the UK sector of the North Sea: a 20% working interest in Trent & Tyne (Licences P.609, P.685 and P.2114); a 75% working interest in Orlando (Licence P.1606); a 75% working interest in Kells (Licence P.1607); a 100% working interest in Ronan & Oran (Licence P.1971); a % working interest in West Wick (Licence P.185); a 100% working interest in Fleetwind (Licence P.1801); and a 33.33% working interest in Farne & Lundy (Licence P.2107). 7.6 The Company s profitability was impacted by a delay in the projected first oil date for Orlando, and a global reduction in oil and gas prices at the end of 2014 and during The table at Schedule 2 summarises the recent financial performance of the Company and Huntington. 7.7 In September 2013, the Company issued the Bonds to the Bondholders pursuant to the Bond Agreement. The Bonds are secured by the Bond Security and the Shares Pledge. The Company also entered into certain amendments in relation to derivative contracts with, and granted the Junior Security and Assignation and Pledge to, the Junior Creditor. 7.8 On 18 December 2014, the Parent issued a press release stating that it was likely that financial covenants contained within the Bond Agreement would be breached during the following twelve months, as a result of the challenges described at clause During early 2015, discussions commenced with the largest Bondholders and an ad hoc committee of Bondholders was formed (the Bondholder Committee ). FTI was retained as financial advisor to the Bondholder Committee, and this engagement was subsequently novated to the Bond Trustee On 27 March 2015, the Company obtained approval of the Bondholders to covenant relief and a deferral of the payment of cash interest on the Bonds until first oil on Orlando, along with

16 certain other amendments to the terms of the Bond Agreement, in exchange for which the Group Companies agreed to provide an acceptable proposal in order to refinance the Bonds and/or obtain funding in order to enable first oil on Orlando to be reached (a Restructuring Proposal ) During the subsequent months, the Group Companies worked to develop a Restructuring Proposal, which was based on the development of Orlando in order to reach first oil. This work involved an extensive search for potential debt and/or equity investors in Orlando or the business as a whole, as well as the disposal of the Group Companies non-core assets. This led to a presentation to Bondholders of a Restructuring Proposal on 30 July On 6 August 2015, the Bondholders approved the Restructuring Proposal presented to them on 30 July The Restructuring Proposal included a farm out of 25% from the Company s 75% interest in Orlando (the Orlando Farm Out ) On 3 August 2015, Atlantic, the Company s joint venture partner in Orlando, issued a statement indicating that it did not have sufficient funding in place to fully meet its 25% share of development costs for Orlando and that it was engaged in efforts to secure a solution. As a result, Management undertook additional efforts to obtain funding for Atlantic s share of Orlando development costs as a precautionary measure in the event that Atlantic was unable to raise sufficient funding On 18 November 2015, the Parent announced that the Restructuring Proposal would not proceed. This was because the parent company of the Orlando Farm Out counterparty, a global energy company, had elected to restrict capital allocation to its upstream operations and therefore a key component of the Restructuring Proposal could not be completed. The Parent s announcement stated that it was likely that the Company would need to be placed into an insolvency process to protect the interests of all stakeholders to the Company Since 18 November 2015, and following consultation with the Bondholder Committee, the Bond Trustee, FTI and Management have run the M&A Process in order to try to sell the assets and/or shares in the Company and Huntington. In parallel with this, contingency planning was undertaken for the potential administration of the Company Ultimately, owing to the progress of the M&A Process and other considerations, the decision was taken by the directors of the Company to place the Company into administration. M&A Process and events leading up to CVA Proposal 7.17 As part of the M&A Process, prospective purchasers were asked to bid on any or all of the following: the shares in or assets of Huntington; the Company s licence interests, principally in Orlando, Kells, Trent & Tyne, West Wick, and Ronan and Oran; and the Shares Management prepared a summary of the Company s and Huntington s business and assets which was distributed to 42 prospective purchasers on 23 November 2015, who were given an initial target date of 4 December 2015 for the submission of their bids, which was later extended for certain assets Details of the interest received and the status of each asset of the Company are provided below at clauses 7.20 to UK

17 7.20 Trent & Tyne (Licences P.609, P.685 and P.2114) The Company s interest in Trent & Tyne was deemed to have no or negative value to the Company. Accordingly, the strategy was to divest the licences to, and agree a consensual settlement of all outstanding claims and counter claims with, the Company s joint operating partner in respect of Trent & Tyne, Perenco UK Limited. The consideration for this transaction comprised a consensual settlement and nil cash consideration The Administrators supported this transaction given there was no realistic prospect of an alternative sale for greater value, and because it would affect the Company s release from a number of actual and potential liabilities in respect of the licences The Administrators considered this transaction, which completed on 24 February 2016, to constitute a pre-packaged sale and as such made the necessary disclosure in accordance with SIP16 that was sent to all creditors of the Company on 14 January Creditors who would like to receive a further copy of the Administrators SIP16 disclosure in respect of this transaction should contact the Administrators at William.Marsden@fticonsulting.com or on +44(0) West Wick (Licence P.185) On 3 February 2016 the Administrators signed a sale and purchase agreement in respect of the Company s interest in West Wick for USD $1.8 million with Chevron. The consideration from the transaction is deferred and contingent as it is linked to the approval of a field development plan by the Secretary of State for Energy and Climate Change (the Secretary of State ) Whilst the sale and purchase agreement was executed approximately four weeks following the appointment of the Administrators and the sale has not yet completed, the Administrators considered the transaction to constitute a pre-packaged sale given the sale was subject to pre-appointment negotiation with Chevron and Chevron s due diligence continued after the appointment of Administrators The Administrators SIP16 disclosure in respect of this transaction was included with the Administrators Statement of Proposals dated 9 February Creditors who would like to receive a further copy of the Administrators SIP16 disclosure in respect of this transaction should contact the Administrators at William.Marsden@fticonsulting.com or on +44(0) Ronan & Oran (Licence P.1971), Fleetwind (Licence P.1801) and Farne & Lundy (Licence P.2107) Ronan & Oran, Fleetwind and Farne & Lundy generated no interest during the M&A Process Ronan & Oran was relinquished to the Secretary of State on 31 December Fleetwind was relinquished to the Secretary of State on 10 January The Company issued withdrawal notices to Parkmead (E&P) Limited, the operator of Farne and Lundy, on 17 December The Company received notification from the OGA on 18 April 2016 that Parkmead (E&P) Limited had submitted a notice of relinquishment to the Secretary of State Orlando (Licence P.1606) and Kells (Licence P.1607) UK

18 The Administrators received several expressions of interest in respect of a sale of Orlando and Kells. In all cases, interested parties intended to structure such an acquisition via a purchase of the Shares following a successful CVA of the Company However, the offers that were received were either not considered to be capable of delivery or represented a lower return to the Company s creditors than the Purchaser s offer Following the marketing process described at clause 7.18, Bridge Petroleum 2 Limited submitted a proposal to the Administrators for the purchase of the Shares. This sale did not complete and consequently no Fund was established for the Approved Creditors Following the failure to sell the Shares to Bridge Petroleum 2 Limited, the Administrators began negotiations with the Purchaser in respect of a sale of the Shares to the Purchaser. The Purchaser s offer represented the best option for the Senior Creditor taking into account both transaction value and execution risk. The Purchaser s offer included the contribution of the USD $2 million by the Lenders to the Fund for the Fund Creditors on Completion, which offer is consistent with the previous transaction concluded with Bridge Petroleum 2 Limited. Therefore the recovery for Fund Creditors is unchanged In connection with the Purchaser s offer to purchase the Shares the Supervisors have amended the CVA in order to reflect the revised offer. This amendment has been made pursuant to the terms of Clause 29.1 of the CVA on the basis that the Purchaser s offer is on substantially the same terms as those set out in the offer of Bridge Petroleum 2 Limited and therefore there is no material modification to the effect or economic substance of the CVA Under the terms of the Purchase Agreement, the Purchaser has agreed to acquire the Shares for the Consideration on Completion. The Contribution will be separately provided to the Company by the Lenders under the terms of the Funding Loan Agreement to establish the Fund. Should Completion occur, the Company will transfer the Fund to the Supervisors, so that the Supervisors can pay a dividend to each of the Approved Creditors in accordance with the terms of this CVA Proposal 7.28 Given the lack of Company assets available to make a distribution to the Company s creditors in any form of insolvency process without the CVA, the Administrators are of the opinion that the sale of the Shares and the CVA would be more beneficial to the creditors of the Company than any other form of insolvency process. Further information, including a comparison with dissolution, can be found in clause 18 and Schedule ASSETS TRANSFERRED FROM THE COMPANY 8.1 In order to deal with certain of the Company s assets which were excluded from the offer made by the Purchaser, it has been necessary to take certain internal reorganisation steps. These are disclosed below for transparency to creditors. 8.2 The following assets (previously owned by the Company) were transferred by the Company prior to the execution of the Purchase Agreement; the shares in Huntington have been transferred by the Company to Devco; and following consultation with the Bond Trustee, the Company s right to bring certain potential recovery actions against third parties (the Recovery Actions ) has been transferred to Huntington in order to preserve the Administrators rights to pursue the Recovery Actions in the future (if appropriate). UK

19 8.3 As further detailed in clause , West Wick has been sold to Chevron but this sale has not completed and the consideration has not yet been paid. The Company will transfer West Wick to Chevron in due course, following approval of the transaction from the Secretary of State on 9 May The Company, the Administrators and the Bond Trustee have entered into an agreement (the West Wick Assignment ) assigning the consideration payable in respect of West Wick from the Company to the Bond Trustee, along with all legal and equitable rights, causes of action, claims and remedies in relation to that consideration (the West Wick Actions ). The West Wick Assignment will take effect on Completion. 8.4 The transfers of the Transferred Assets are not detrimental to the CVA Creditors because: all assets (other than the Recovery Actions and West Wick) are pledged to the Senior Creditor and the Junior Creditor pursuant to the Bond Security and the Junior Security respectively; the value of the Recovery Actions, if any, is highly uncertain. Any action would require funding of forensic review and legal work and the costs may be significant. Furthermore, any Recovery Actions may ultimately be unsuccessful. Even if a Recovery Action were to be successful, given the number of, and amount owing to, the CVA Creditors, the net return to Approved Creditors may be minimal and lower than their expected dividend from the Fund; and any payments from either the sale of West Wick or the West Wick Recoveries would not result in a Prescribed Part being made available for unsecured creditors of the Company. All funds from West Wick would be payable to the Bond Trustee, as a result of its rights under the West Wick Assignment and the existing intercreditor and security deed dated 30 September Therefore assigning the potential recoveries from the West Wick Actions in advance of actual recovery and the consideration for the sale of West Wick does not impact the unsecured creditors. 9. DIRECTORS STATEMENT OF AFFAIRS 9.1 The directors of the Company have prepared a Statement of Affairs as at the Operative Date, together with a list of all of the creditors of the Company and the amount of their respective claims against the Company. The Statement of Affairs is attached at Schedule 1 as required in accordance with Rule 1.11(2)(b) of the Rules. 9.2 The Company s assets, valued on an estimated to realise basis but excluding goodwill, are as set out in the directors Statement of Affairs at Schedule As at the date of Completion, none of the Company s assets are subject to any security in favour of any creditors other than the Senior Creditor and the Junior Creditor. Details of the security held by the Senior Creditor and the Junior Creditor can be found at Schedule 5. The Bond Security, Shares Pledge, Junior Security and Assignation and Pledge will be released upon, and as part of, Completion (but shall not be affected in any other way by the terms of this CVA). UK

20 10. INTRODUCTION PART III TERMS OF THE COMPANY VOLUNTARY ARRANGEMENT 10.1 No prospective purchaser was willing to buy the Shares without first implementing a CVA of the Company because of the Company s outstanding debts and the fact that the Company is in administration. By proposing a CVA, the Administrators may propose a compromise of certain of the Company s liabilities, thus making a sale of the Shares viable. Each of the Approved Creditors will receive a dividend from the Fund. However, without a CVA the Administrators believe that it would not be possible to sell the Shares or pay a dividend to unsecured creditors The purposes of the CVA are as follows: to compromise the Company s liabilities to the Fund Creditors and the Group Companies to facilitate a sale of the Shares to the Purchaser; and to pay each of the Approved Creditors a dividend out of the Fund pro rata to their Approved Claim in exchange for the full and final settlement of their claims against the Company The Fund would not be available in a dissolution or administration of the Company without the CVA. Given the lack of returns for unsecured creditors of the Company by any other means, it is therefore the Nominees opinion that the CVA represents the best option for the Company s unsecured creditors If the CVA is not approved there will not be sufficient funds to repay the Junior Creditor and Senior Creditor in full, therefore the only potential returns to unsecured creditors of the Company would relate to the Prescribed Part only. However, the Administrators do not anticipate that there will be sufficient funds for a Prescribed Part to enable a payment to unsecured creditors. If the CVA is not approved, the Administrators will file a notice for dissolution of the Company pursuant to paragraph 84 of Schedule B1 of the Act. A comparison of estimated outcomes for CVA Creditors in the CVA and dissolution is contained in Schedule Pursuant to the notice served by the Bond Trustee on the Parent dated 27 May 2016, the Bond Trustee is entitled to exercise all voting rights in relation to the Shares If the CVA is approved by the CVA Creditors, the Supervisors will be responsible for (i) the implementation of the CVA, (ii) receiving the Contribution, (iii) adjudicating and agreeing the Fund Creditors claims, and, if Completion occurs, (iv) paying dividends to each of the Approved Creditors out of the Fund Only Fund Creditors are entitled to have their claims against the Company adjudicated by the Supervisors in accordance with clause 21 and if their claims are Approved Claims, receive dividends from the Fund All liabilities owed by the Company to the Fund Creditors and the Group Companies will be compromised by the CVA in accordance with clause Despite a legal entitlement, the Senior Creditor, Junior Creditor and Group Companies have elected not to participate in the Fund (and are therefore not Fund Creditors) in order to improve the return for the Approved Creditors. Aside from the Approved Creditors, none of the Fund Creditors, the Senior Creditor, the Junior Creditor, or the Group Companies will be entitled to any dividend from the Fund in relation to liabilities owed to them by the Company. UK